Inflation in Venezuela could top 1 million percent by year’s end as the country’s historic crisis deepens, the International Monetary Fund said on Monday.
Venezuela’s economic turmoil compares to Germany’s after the first world war and Zimbabwe’s at the beginning of the last decade, said Alejandro Werner, head of the IMF’s western hemisphere department.
“The collapse in economic activity, hyperinflation, and increasing deterioration … will lead to intensifying spillover effects on neighboring countries,” Werner wrote in a blogpost.
Venezuela, a once wealthy oil-producing nation, is in the grips of a five-year crisis that has left many of its people struggling to find food and medicine, while driving masses across the border for relief into neighboring Colombia and Brazil.
Shortages in electricity, domestic water and public transportation plague millions of Venezuelans, who also confront high crime, the IMF noted.
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Under the late Hugo Chávez, who ushered in Venezuela’s socialist revolution in 1999, a new constitution and numerous elections placed nearly all government institutions under the control of the ruling Socialist party.
This concentration of power was aided by a feuding opposition which carried out ineffectual campaigns and electoral boycotts. After Chávez died of cancer in 2013, he was succeeded by Nicolás Maduro who is even less tolerant of dissent.
Growing political authoritarianism has coincided with greater state dominance over the economy. But expropriations, price controls and mismanagement have led to a 40% contraction of the economy in the past five years.
Oil accounts for 96% of Venezuela’s export income but many foreign companies have been driven out and production has dropped to a 30-year low.
The resulting fiscal crisis has prompted the government to print more money, which has led to hyperinflation and a collapse of the currency.
It also means that the government can’t import enough food and medicine to meet demand.
Maduro has rejected economic reforms out of loyalty to socialism and because many government officials are allegedly getting rich off the economic distortions – through exchange rate scams and by selling scarce food on the black market.
If the prediction holds, Venezuela’s economy will have contracted 50% over the last five years, Werner said, adding that it would be among the world’s deepest economic falls in six decades.
President Nicolás Maduro has blamed Venezuela’s poor economy on an economic war he says is being waged by the United States and Europe.
Maduro won a second six-year term as president despite the deep economic and political problems in a May election that his leading challenger and many countries do not recognize as legitimate.
The IMF estimates Venezuela’s economy could contract 18% this year, up from the 15% drop it predicted in April. This will be the third consecutive year of double-digit decline, the IMF said.
Werner said the projections are based on calculations prepared by IMF staff, but he warned that they have a degree of uncertainty greater than in other countries.
“An economy throwing you these numbers is very difficult to project,” Werner said at a news conference. “Any changes between now and December may include significant changes.”